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Some of you who trade in the markets would have probably received notices for defective returns from the Income Tax department for the assessment year 2012-13.
One possible reason could be that you did not take note of the the amendment to section 44AD which deals with computing profits and gains from a business on a presumptive basis.
Previously, only construction business was covered under section 44AD. But from AY 2011-12, all businesses including the business of trading in the markets was brought under its purview. What this section says is that if your turnover is less than Rs 1 crore and if your profit is less than 8 per cent, then you will have to get your books audited by a chartered accountant. Turnover in this context would means settlement turnover and not contract turnover.
While trading in the markets, the correlation of profits to turnover doesn’t work in a manner that is similar to other traditional businesses. This basically means that almost every person trading in the markets will now need to maintain a book of accounts and have it audited by a CA. So do keep note of this change when filing your return this year too, lest you receive a notice in the future.
How to maintain books
Keep an excel sheet accounting for all funds moving in and out of your trading account. Your bank account statement can perhaps be used to prepare this. It will also double up as a proof of your expenses and earnings. Next, have a profit and loss statement. The profit and loss report from your broker will give you settlement turnover and profits/losses. The contract notes can be used as proof. Thirdly, the DP (depository participant) statements can be used as proof for any stock bought/sold or transferred from another account. If you claim any expenditure such as salary, rent, Internet bill, conveyance, depreciation of computer or any other expense for your business of trading, keep copies of all such bills.
With all these details, a chartered accountant can verify and sign it.
If you have received a notice, consult your CA and rectify the defects mentioned in the notice within 15 days of receiving. Or you can ask for an extension to remove the defect(s) and file the return again.
If you haven’t received a notice but are trading in futures and options in the stock/commodity/currency markets, make sure to have your books audited by a CA irrespective of your turnover to avoid such notices in the future.
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